The confirmed drop in inflation threatens the LEP rate which will be applied on August 1st. Over one year, consumer prices increased by 2.2% in April according to a provisional estimate from INSEE published this Tuesday. The increase was 2.3% in March and 3% in February. Explanations.
It is an indicator that we scrutinize carefully every month. INSEE has just revealed this Tuesday its first estimate of inflation for April. Over one year, consumer prices are expected to increase by 2.2% after +2.3% in March and 3% in February. A small drop is linked in particular to the slowdown in inflation in food and tobacco prices. For the third month in a row, monthly inflation is preparing to fall back below 3%, which has not been the case since January 2022.
Figures which validate the scenario drawn up by INSEE in its latest quarterly economic report, with its forecasts for price developments over the coming months. It confirms the trend of a decline in inflation and consequently of a almost certain drop in the rate of the Popular Savings Booklet (LEP), whose role is precisely to protect the savings of the French from inflation.
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LEP: a rate of 2.5% to keep inflation in check? No…
If INSEE’s projections continue to be confirmed, average inflation for the first half of the year should be close to 2.5%. However, alignment on this figure is one of the scenarios planned by the formula for calculating the LEP rate. In this scenario, the latter therefore risks going from the current 5% to 2.5% overnight.
Don’t worry, that won’t happen. Because there is a guardrail. Be careful, this is a bit technical: the LEP rate cannot fall below the Livret A rate increased by half a point. However, this figure is likely to be higher than 2.5%.
Here’s how it’s going to happen. Around July 15, when updating the return on regulated savings, the Banque de France will calculate the technical rate of the Livret A, that resulting from its regulatory calculation formula. It will not be a question of modifying the Livret A rate (3% currently), frozen until January 2025. The challenge will be to check whether this figure, increased by half a point, is higher than the half-yearly inflation , and therefore more advantageous for the saver.
We can already assure that this will be the case. Given the inflation outlook, and the absence of a short-term fall in interbank rates (the other variable used in the formula), the technical rate of the LEP should be around 3.70%. Declining, therefore, but not in the same proportions as inflation. Clearly, the real yield of the LEP, adjusted for inflation, will remain very advantageous.
* monthly inflation excluding tobacco
In red: real yield of the LEP negative compared to inflation
In green: positive real yield of the LEP compared to inflation.
MoneyVox
The Banque de France will still have to make a choice: apply this rate of 3.70% from the calculation formula, as is the rule; or propose to the Minister of the Economy to derogate from this rule to set the rate as you wish. In this case, Bercy could, for example, choose to slow down the fall – this is what it did in February – and set the LEP rate at 4%. Answer in less than 3 months!